Objective Capital's Proppants Investment Forum Alison Saxby, Roskill City of London - April 21, 2016

1. PROPPANTS INVESTMENT
FORUM
GRANGE CITY HOTEL, CITY OF LONDON ● THURSDAY, 21 APR 2016
www.ObjectiveCapitalConferences.com
The Global Proppants Industry
Alison Saxby – Director & Manager, Roskill

2. The Global Proppants Industry
Alison Saxby
Objective Capital
21 April 2016

3. The statements in this presentation represent the considered views of Roskill
Information Services Ltd. It includes certain statements that may be deemed
"forward-looking statements“. All statements in this presentation, other than
statements of historical facts, that address future market developments, government
actions and events, are forward-looking statements. Although Roskill Information
Services Ltd. believes the outcomes expressed in such forward-looking statements
are based on reasonable assumptions, such statements are not guarantees of future
performance and actual results or developments may differ materially from those in
forward-looking statements. Factors that could cause actual results to differ
materially from those in forward-looking statements include changes in general
economic, market or business conditions.
While Roskill Information Services Ltd. has made every reasonable effort to ensure
the veracity of the information presented it cannot expressly guarantee the accuracy
and reliability of the estimates, forecasts and conclusions contained herein.
Accordingly, the statements in the presentation should be used for general guidance
only.
Disclaimer

4. • Solely focused on metals and minerals information and
research since 1970
• Independent company, privately owned
• Publishes over 40 industry market reports and briefings
• Bespoke consultancy and market studies
• Coverage:
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5. Proppants – a global $6bn industry in 2016
North American frac sands – a $2.2bn industry in 2016
Today
• Evolution of Hydraulic Fracturing
• Proppants – Frac sands
• Proppants - Ceramic
• Trends and Developments
• Outlook
Outline of today’s presentation

6. Evolution of hydraulic fracturing
(fracking)

7. Evolution of hydraulic fracturing
Source:aogr.com
First commercial treatments – 1949 in Duncan. Oklahoma by Haliburton for Stanolind Oil Co.
Source: Montgomery & Smith 2010
1930s – First horizontal well
1949: 100-150lbs of sand used
1950s: Water was used as a fracturing fluid
1960s: First 500,000lbs job (Pan American now BP)

8. Barnet Shale US - first fracturing and horizontal drilling combined

9. Exploiting unconventional oil and gas demand

10. Vertical wells – lower proppant use per well
Vertical wells - Main characteristics
Technical
Very shallow (3,000 feet) to very deep (18 000 feet)
wells
Wells productivity not sufficient to offset decline
Both Oil and Gas basins, used in conventional and tight
reservoirs
High EUR (Estimate ultimate recovery) achieved >75%
Relatively low available volume
Low number of stages (<8 stages)
Economics D & C (Drilling & completion) costs $1.5M (US on-shore)
Proppant mass: 300,000lbs
Proppants 1-10% of D & C costs
Source: Saint Gobain

11. Exploiting unconventional oil and gas demand

12. Higher proppant use in unconventional wells
Main Characteristics – unconventional wells
Technical Always deeper than sandstone formations in the same area
Both oil and gas basins
Low EUR (Estimate ultimate recovery) achieved <20%
Large available volume
High number of stages (>20 stages) and increasing rapidly
Economics D & C (Drilling & completion) costs $6.5-10M (US on-shore)
Proppant mass: 8-12M lbs
Proppants 10-40% of D & C costs
Source: Saint Gobain, Roskill

13. Modern art of fracking

14. Costs driving innovation
Mid 2000s Multi frac stages, 4-6m lbs (3,000st)
proppant/well
From 2013 40-50 frac stages, up to 20m lbs (10,000st)
proppant/well
Source: M O’Driscoll, IMFORMED 2015

15. Main proppant types
Source: M. O’Driscoll, IMFORMED
Silica sand (“frac sand”, FS): derived
from silica sand deposits, 99% SiO2
Ceramic proppants (CP): derived mainly from bauxite
and/or kaolin, >50% Al2O3
Resin coated proppants

16. US proppant market share (80Mlbs, 36Mt) 2014
Source: Carbo Ceramics, M O’Driscoll IMFORMED 2015
Resin coated
sands (5-10%)
Silica sands (Frac
sands) (80-90%)
Ceramic
proppants
(5-10%)

17. Proppant market structure
Source: Carbo Ceramics
Resin coated
sands (5-10%)
Silica sands (Frac
sands) (80-90%)
Ceramic
proppants (5-
10%)

18. Typical fracturing fluid components
Water
98%
Proppants
2%
Water
Proppants
Surfactant
KCl
Gelling agent
Scale inhibitor
pH adjusting agent
Breaker
Crosslinker
Iron control
Corrosion inhibitor
Biocide
Acid
Friction reducer
Source: Frac Focus

19. Proppants – properties

20. What do you need from a proppant?
• Properties – Strength, shape, size, durability
• Proppant availability – Supply source, quality
and cost
• Fracture treatment suitability
• Conductivity requirements – Desired
conductivity, cost vs benefit,
ie the proppant cost set against oil
recovery

21. Krumbein and Sloss roundness and sphericity chart
Source: www.GlobalEnergyLaboratories.com, Frac Sand Specifications "Quick Reference Guide"

22. Proppants – Frac sands

23. Shale gas (and oil) basins in North America
Source: Canadian Association of Petroleum Producers©

24. In 2002 demand for frac sand began to rise…
USA silica sand production from 1915 and frac sand from 1970 to 2014 (mt)
0
10,000,000
20,000,000
30,000,000
40,000,000
50,000,000
60,000,000
70,000,000
80,000,000
IS Production
US Frac Prod
Source: USGS Mineral Commodity Statistics; Roskill

25. Proppants – ceramic

26. Primary raw materials
• bauxite
• kaolin
• bauxitic kaolin
• bauxite/kaolin blends
Alternative raw materials
•magnesium silicate (derived from serpentinite, olivine, dunite)
•andalusite
•metabasalt
•fly ash – cenospheres
•alumina-rich clays
•nanostructured ceramics/glass
•metallurgical slag
•mine tailings
Ceramic proppant feedstocks

27. Ceramic proppant grade examples
Carbo Ceramics LWC
Lightweight ceramic
proppant
IDC
Intermediate density
ceramic proppant
HDC
High density ceramic
proppant
Raw material kaolin bauxite bauxite
Apparent SG 2.71 3.27 3.56
Bulk Density (g/cm3) 1.57 1.88 2.00
Alumina % 51.0 72.0 83.0
Silica % 45.0 13.0 5.0
Iron % 1.0 10.0 7.0
Titania % 2.0 4.0 3.5
Raw material kaolin bauxite bauxite
Source: Carbo Ceramics

28. Ceramic proppant producers – relatively few worldwide
China
Over 100
producers
Russia
Borovichi
Fores
Carbo
Brazil
Mineral Curimbaba
USA
Carbo Ceramics
Imerys
Saint-Gobain
Located near feedstock deposits, bauxite, kaolin & serpentine

29. Ceramic proppant producers – facing headwinds
• D&C activity decline in 2015 & 2016 especially in North America
• Closures in last 12-18 months
• Expansions put on hold
• In USA, E&P using higher volumes of frac sands and tailings than
ceramic proppants – short term solution? as after initial high well
productivity it declines steeply
Developments
• Ultra high strength Proppants from Carbo Ceramics, Saint-Gobain,
CoorsTek
• Highway by Schlumberger – slugs of proppant pumped down well to
create flow channels. Enhances conductivity and reportedly uses 40%
less proppant
• Proppant transport technology – Fairmount Santrol. Proppant polymer
coating decreases specific gravity enables proppant to go further and
higher into formation therefore increases stimulated reservoir volume

30. Outlook

31. Oil prices & US drilling activity subdued in early 2016
Source: Baker Hughes, World Bank

32. In the long term, energy production forecast to increase
spurring exploration, drilling & proppant use to 2035
Source: BP Energy Outlook 2016
‘
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
18,000
20,000
Liquids Natural Gas Coal
Nuclear Energy Hydroelectricity Renewables
Bn toe

33. More importantly the new sources of supply will require
proppants to 2035
Source: BP Energy Outlook 2016

34. Top ten countries with technically recoverable shale gas
resources
Source: EIA, IMFORMED, 1EIA used for ranking order
Rank Country Shale gas (trillion
cubic feet
Estimated order
of commerical
development?
1 China 1,115 2
2 Argentina 802 1
3 Algeria 707 2
4 USA 1 665 1 (GOM)
5 Canada 573 1
6 Mexico 545 1
7 Australia 437 2
8 South Africa 390 4
9 Russia 285 3
10 Brazil 245 1
World Total 7,299

35. Long term positive outlook for proppants
• Long term demand assured by anticipated world gas demand
• Volumes assured by increase in horizontal drilling, longer
laterals and rise in fracking stages
• Higher volume of proppant consumed per well –
up to 16M lbs per well up from 5Mlbs in 2010-12
• Move to pad drilling
• World shale gas potential
• Long term demand assured by anticipated world gas demand
• Anticipated growth markets outside the USA to evolve at
different rates

36. Thank you

37. • Founded in 1930 as a management consultancy
• Focused on Metals and Minerals information and
research since 1970
• Publish over 40 industry market reports and briefings
• Bespoke consultancy and market studies
• Coverage:
• Steel Alloys
• Minor Metals
• Industrial Minerals
• Carbon and Chemicals
Who are Roskill?